Is this the best comeback trade no one is talking about?

Please note that this interview was recorded Wednesday, 21 January 2026

Emerging markets have spent much of the past decade on the wrong side of investor attention. Despite steady economic growth and improving corporate fundamentals – particularly across large parts of Asia - capital consistently flowed elsewhere, toward the US, its technology champions, and the perceived safety of developed markets. For emerging market investors, strong company performance was repeatedly overwhelmed by a rising US dollar, valuation compression, and persistent scepticism.

That backdrop is now shifting. After years of underperformance, emerging markets delivered a strong rebound over the past 12 months, prompting renewed interest from investors willing to look beyond familiar narratives. For Dr Joseph Lai, who has covered Asian and emerging markets for more than two decades at Ox Capital Management, the change is not random. It reflects a confluence of forces that have quietly turned from headwinds into tailwinds, most notably the direction of the US dollar.

Lai argues that currency dynamics sit at the heart of the emerging market opportunity set. A strong US dollar made it difficult for returns to compound, even when local earnings were growing. As that pressure eases, long ignored fundamentals are beginning to reassert themselves, particularly in parts of Asia where valuations remain attractive and balance sheets are comparatively healthy.

As Lai explains:

“Once that reverses, emerging markets can become very interesting because the good companies are growing and these economies are typically growing at double the real GDP growth rates of developed markets.

You have growth, a stable or appreciating currency, and in many cases dividend yield, all from valuation levels that are very cheap after years of underperformance.”

In this conversation, Lai outlines why he believes the recent turnaround may mark the early stages of a longer cycle, how geopolitics and fiscal policy are reshaping capital flows, and why countries such as Indonesia and Vietnam are reaching important inflection points. He also discusses where OxCap is leaning in today and where caution is still warranted as emerging markets re-enter the investment conversation.

INTERVIEW SUMMARY

A difficult decade finally gives way

Emerging markets have endured a prolonged period of disappointment, even as many underlying economies continued to grow. According to Lai, the issue was not fundamentals, but where global capital chose to go.

“For more than a decade, the game has really been in the US or developed markets,” he said. 

“A lot of these good companies in emerging markets have been growing every year, but they have been derated year after year.”

That pattern began to change in 2025, when emerging markets rose more than 20% and outperformed developed markets for the first time in many years. Lai believes this may represent a turning point rather than a short-lived rebound.

Why the US dollar matters so much

Currency has been the dominant force shaping emerging market returns. In a strong US dollar environment, local equity gains were often offset by currency depreciation.

“In the environment of a strong US dollar, it has been hard to actually pick the winners because investors have to suffer from the depreciating currencies relative to the US dollar,” Lai said.

He expects ongoing fiscal deficits, rising government debt, and geopolitical uncertainty in developed markets to keep pressure on the greenback. If central banks are forced to intervene to stabilise bond markets, Lai sees that as supportive for emerging assets.

“If that happens, it is actually quite US dollar negative,” he said. 

“I think ultimately it is good for gold and it is good for commodities, and I suspect it is probably good for emerging markets.”

Indonesia and Vietnam at inflection points

Among the most compelling opportunities, Lai highlighted Indonesia and Vietnam, which he believes are following a familiar development path.

“These countries remind me of China about 20 plus years ago,” he said. 

“Young population, joining the global supply chain, investing in infrastructure like ports and roads and power stations.”

Vietnam stands out due to its manufacturing competitiveness, export growth, and rising domestic consumption. Despite concerns around tariffs, Lai believes Vietnam remains the lowest-cost producer across many categories.

“The exports are booming,” he said. “As a result, consumption gets pulled along as the workers are getting paid more, and more and more infrastructure is going in.”

Fiscal discipline as a competitive advantage

A key differentiator for many emerging markets today is fiscal restraint. Having endured repeated crises, governments have been far more conservative than their developed market peers.

“They have been much more fiscally responsible, probably because they had to be,” Lai said. “They do not have the printing press like the Americans.”

China is more complex, but Lai argues much of the risk tied to its property adjustment has already been absorbed after several difficult years.

Where OxCap is leaning in and pulling back

From a portfolio perspective, OxCap is focused on selective opportunities rather than broad market exposure.

Lai highlighted Indonesian banks as a standout, highlighting their compelling financials: “double-digit return on equity, close to one times price to book, with 8% dividend yield growing” in an underleveraged economy.

He is also constructive on select Chinese future champions and semiconductor memory stocks in Korea, including Samsung and SK Hynix, which he believes remain early-cycle beneficiaries of structural demand.

By contrast, OxCap is underweight India. “It is still a great economy,” Lai said, “but it is nothing that exciting valuation-wise compared to these other markets.”

The message for investors

Lai believes emerging markets deserve renewed consideration, particularly given low starting valuations and improving macro conditions.

“We think it is just the beginning of a longer trajectory,” he said. 

“With the US dollar weakening, money has to go somewhere, and that is where the growth is.”

Managed Fund

Ox Capital Dynamic Emerging Markets Fund

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